(Supreme Court Judgment 2021Do2180, Decided March 17, 2022)
A peaceful Saturday evening was interrupted by an urgent call from Mr. A, the CEO of a clothing company. “Attorney, I am so sorry to call you on the weekend. We received a ‘Certificate of Contents’ (legal notice). It looks serious. Could you take a look?”
Usually, 90% of such notices are exaggerated claims that can be easily refuted. I asked him to send a photo of the letter, expecting a standard warning. However, this one was different. Unlike a typical Cease and Desist letter, the sender (a famous brand) was convinced of trademark infringement. They meticulously compared their genuine shoes with the alleged counterfeits distributed by Mr. A’s company, warning of imminent legal action in a very strong tone.
The Situation: The “Free Gift” Event
Company A had recently held a promotional event: “First 100 customers who buy over 100,000 KRW worth of clothes get a free pair of famous brand sneakers.” The letter claimed these sneakers were counterfeits and demanded details on sales volume and suppliers, threatening criminal complaints.
The letter left little room for negotiation. It felt like the famous brand was conducting a massive crackdown on counterfeit distribution. The evidence suggested the items were almost certainly fake.
However, the CEO’s argument was this:
“We only gave away about 100 pairs, and we didn’t ‘sell’ them. We gave them as free gifts for promotion. Does this still count as trademark infringement?”
He asked if we could respond with this logic.
Legal Analysis: Free Gifts vs. Trademark Infringement
Conclusion: If the product is counterfeit, trademark infringement is established regardless of whether it was sold or given for free, or whether it was for profit or promotion.
Under the Korean Trademark Act, infringement occurs when someone uses a mark identical or similar to a registered trademark on identical or similar goods without permission. The Act defines “Use of a Trademark” broadly. Crucially, “Transferring (assigning)” goods displaying the trademark constitutes use.
Trademark Act, Article 2, Paragraph 1, Item 11 “Use of a trademark” means any of the following acts:
- (a) Displaying a trademark on goods or packages of goods;
- (b) Transferring or delivering goods or packages of goods on which a trademark is displayed…
In this case, transferring counterfeit shoes to customers—whether sold or gifted—is considered “Transferring” under the law. Whether there was monetary compensation (price) or not is irrelevant.
The Supreme Court’s Clear Stance (Case 2021Do2180)
A recent Supreme Court ruling clarified this exact issue.
Case Background: The defendant produced 1,000 counterfeit towels.
- 200 were sold to a client.
- 100 were given to another client as free promotional gifts. The lower court acquitted the defendant regarding the 100 free towels, arguing they weren’t “goods” for sale.
Supreme Court Judgment: The Supreme Court reversed the lower court’s decision, ruling that the free towels also constituted infringement.
[Summary of Judgment] “Even if some of the goods were provided free of charge as gifts or promotional items, their nature as ‘goods’ (commodities) cannot be denied simply because they were given for free… Therefore, displaying a trademark on such towels or transferring them constitutes the ‘use of a trademark’ under the Trademark Act.” (Supreme Court of Korea, Mar. 17, 2022, Case No. 2021Do2180)
Implication: In Mr. A’s case, everyone involved in the chain is liable for trademark infringement:
- The manufacturer of the fake shoes.
- The supplier (Company B) who sold them to Mr. A.
- Company A, who gave them to customers as free gifts.
Some ask about the “Exhaustion of Rights” doctrine (First Sale Doctrine), arguing that once a product is sold, the trademark owner cannot control further distribution. However, this doctrine only applies to genuine goods. It never applies to counterfeits. If a product is fake, every step of its distribution is an infringement.
The Outcome: A Fortunate Escape
Fortunately, Company A had prepared well. When purchasing the shoes from Supplier B, they had obtained a “Certificate of Authenticity” and included it in the contract. This is rare for small promotional items, but it saved them.
We responded to the law firm:
- Company A purchased the goods believing they were genuine, backed by a Certificate of Authenticity.
- The items were used for a small-scale event (100 pairs) at a financial loss for promotion, not for direct profit from the shoes.
- We provided the contact information of Supplier B (who still claimed they were 100% genuine).
The brand’s law firm accepted that Company A had no malicious intent (no criminal intent) and agreed to drop the issue against Company A in exchange for the supplier’s information.
Expert Advice
“Free” does not mean “Risk-Free.” If a product is counterfeit, any form of distribution—selling, displaying, or gifting—is trademark infringement. When using famous branded products for business promotions (especially fashion items like shoes or clothing where fakes are common), you must be extremely cautious. Always secure proof of authenticity from your supplier.
Sarang IP We provide expert legal counsel on intellectual property disputes and trademark strategies.
(Disclaimer: This post is for informational purposes only and does not constitute specific legal advice. Please consult with a professional attorney regarding your specific case.)
